Choosing someone to name in your Estate Plan to serve as your Executor, Trustee and Agent under Power of Attorney can be a daunting task. Who should you name? There are many options to choose from, such as a Professional Fiduciary, your attorney, your CPA, a Bank Officer, a family member or a friend. Here I will review your various options and why choosing a Professional Fiduciary may be a superior choice.
Why you may want to name a Private Professional Fiduciary instead of a Bank Trust Officer...
Ease of Transition – Bank Trust Offices are huge departments that are often difficult to get through to. This may not come into play as much while you are living and serving as your own trustee, however, once you pass away, beneficiaries can find it difficult to get through to Trust departments to notify them of your passing and that the Bank is the named Successor Trustee. Trust Officers will not be proactive in seeking out the trust documentation that names them Trustee. They will simply wait to receive a copy of the trust, often for weeks or months after your passing. This delay could leave your assets (think home and contents, or bank accounts with auto-pays that could cause over drafting) at risk during the interim period while there is no acting trustee. Often the bank has no idea they are the trustee until someone notifies them, which can be a difficult task for a beneficiary who does not understand the legal terminology (a will verses a trust, or a trustee verses a trustor, or a fiduciary verses an attorney – all often confused). Beneficiaries often do not understand their rights or role as the beneficiary or the trust administration process itself.
Personal Service – Bank Officers may or may not give your beneficiary a direct line to contact them. Often a beneficiary will have to call into the call center and be transferred through to the Trust Officer each time they call. With a Professional Fiduciary, your beneficiary has a direct number to contact the trustee. They will also have the same point of contact and often, depending on the size of the Fiduciary Firm, be able to speak directly with the trustee. Professional Fiduciaries can be easier to get a hold of and they can provide more personal service. Further, a Professional Fiduciary is able to customize their administration to each and every trust matter. Trust Officers are often bound by bank protocol and routine procedure which may not meet each individual beneficiary’s needs.
Handling Non-Cash Assets – If you have an estate that is composed of checking, savings and investment accounts, a Bank Officer may be suitable for your needs. However, if you own a home, investment properties, vehicles, boats, furniture and furnishings inside a home or in storage, a Bank Officer may not be the best choice. Bank Officers want to manage money for the most part. They typically do not want to handle the sale or distribution of your non-cash assets or manage life estates or rental properties. Often times upon finding out that there are these types of assets in the trust, they will decline to serve and the next named trustee will need to step up. If you have these types of assets, it may be a better choice to name a Professional Fiduciary as your Executor and Successor Trustee. Further, a Professional Fiduciary is usually willing to serve as Agent Under Power of Attorney, while Bank Officers will not.
Account Minimums – Bank Trust Departments have account minimums and will not take on smaller trust administrations. A typical bank minimum is $5 million in cash and investment accounts. You may be able to find smaller Banks that have a lower minimum. A Professional Fiduciary sets their own minimum and accepts new matters on a case-by-case basis.
Why you may want to name a Private Professional Fiduciary instead of an Attorney or CPA...
Not Their Expertise - Attorneys typically do not want to administer trusts or estates. Attorneys want to practice law by drafting pleadings and petitions and provide legal advice to their clients. Attorneys are experts in their field of law. Similarly, CPA’s like crunching numbers and giving tax advice. Attorneys and CPAs do not know the day-to-day administrative steps, procedures or the practical application of trust and probate law. As Professional Fiduciaries, we are experts in administration. On a daily basis, we deal with collecting accounts, managing investments and rental properties, filing tax returns, making distributions to beneficiaries, appraising assets, completing fiduciary accountings (which many CPAs do not know how to do and many attorneys will outsource), and more!
Did Somebody Say Billable Hours? – “Billable hours” is a common term for attorneys, CPAs and fiduciaries alike. We all bill by the hour on certain matters and have hourly rates. Attorneys and CPAs will often bill at rates between $275-600 per hour. While Professional Fiduciary rates are typically seen under $275 per hour. Utilizing a Professional Fiduciary is usually much more cost effective than utilizing an attorney or CPA for trust administration.
Conflict of Interest – I frequently hear of drafting attorneys who refuse to name themselves as a successor trustee in the Trust they are drafting. Firstly, because they do not want to administer trusts, and, secondly, because there is an inherent conflict of interest in doing so. The drafting attorney, knowing that they are the named successor trustee, can draft the trust agreement in such a way that is more friendly toward the trustee’s interests and less friendly toward the beneficiaries’ interests. Likewise, a CPA, knowing your financials inside and out could coach you into making financial decisions that may be more beneficial for their anticipated role as trustee, rather than what is most beneficial for you here and now. Further, if your CPA is administering your estate, filing fiduciary tax returns and producing the fiduciary accounting all by themself, there is a lack of checks and balances, which can encourage misdealing.
Why you may want to name a Private Professional Fiduciary instead of a family member or friend...
Experience – Professional Fiduciaries wear many hats and there are a lot of moving parts in trust and estate administration that you need to be familiar with. Family members and friends, no matter how smart or well educated, do not know how to administer a trust or estate and often take missteps, make mistakes, create costly errors or are negligent in their duties. Negligence by a family member serving as trustee is the number one factor leading to probate and trust litigation lawsuits.
Neutrality – Professional Fiduciaries are neutral. We are required to treat each beneficiary equally. Family trustees can be emotional and preferential towards themselves or other beneficiaries. Further, if your family trustee is also a beneficiary, this creates an automatic conflict of interest and puts the other beneficiaries on higher guard and your trustee in higher scrutiny. This can lead to more conflict.
A Burdensome Task - Ask any family trustee who has administered their loved one’s trust or estate and they will tell you how much work it is! This can be difficult for someone who is working full-time, has a family or is aged themself. When you ask someone to serve as your Executor or Trustee, you must realize that you are asking them to devote at least a full year of their life to the process. Administering trusts and estates is time consuming, stressful and not for the faint of heart. Your family member or friend may not mind taking on the task in exchange for compensation. However, if you expect your family member or friend to serve without compensation, please know the extent of the favor you are asking of them. In addition to the time burden, you are also asking them to take on a significant amount of liability and stress. If you suspect there will be any conflict among your beneficiaries or if your children have difficult or strong personalities, you may want to choose a Professional Fiduciary as your Executor or Trustee.
Don’t Forget the Bond – A bond is like an insurance policy on your assets should your Trustee or Executor abscond with your money or act negligently. You can waive the bond requirement in your revocable trust, however, if there’s any inkling that there may be conflict you may want to consider otherwise. Consult with your attorney about this. Any trust administration that goes to court will require a bond. Probate administrations also require a bond. If your named Executor or Trustee is not credit worthy they will not qualify for a bond. Professional Fiduciaries are often appointed because the family members or named Executor/Trustee cannot qualify for a bond themselves.
I am not a lawyer and the information contained in this article should not be construed as legal advice.
Jennifer Feehan is a California Licensed Professional Fiduciary, serving all of San Diego County